MomentumOptions.com Pre-Market Update for 7/14/2020
Late Session Selloff Sinks Bullish Breakout
The market was showing strong gains throughout much of Monday’s session despite a record number of new coronavirus cases in California, Florida and Texas over the weekend. On the flip side, New York had its first day of no deaths from the pandemic while continued positive news on a vaccine offset some of the worry.
The near-term technical outlook is still favoring the bulls, to a degree, following the breakout of the mini trading ranges from last week. However, Tech weakened in the final hour of action with the rest of the market cratering in the last 20 minutes after California Governor Gavin Newsom ordered all restaurants, bars, hair salons, and movie theaters to close again.
Volatility stayed elevated throughout the session and the close back above a key level of resistance was a slightly bearish signal for the market.
The Dow reached an afternoon peak of 26,101 before settling at 26,085 (+0.04%). Key resistance at 26,500 and the 200-day moving average were cleared but levels that held. A close below the 26,000 level would suggest additional weakness towards the 25,500 area.
The Russell 2000 tapped a session high of 1,452 before settling at 1,403 (-1.3%) and the session low. Key resistance at 1,450 and the 200-day moving average held with a close below 1,400 being a slightly bearish signal going forward.
The Nasdaq traded to another all-time high of 10,824 while finishing at 10,390 (-2.1%). Uncharted territory at 10,800 was cleared but held with continued closes above the this level suggesting additional momentum towards the 11,000 area. A close below 10,250 would signal a further backtest towards the 10,000 level.
The S&P 500 made a midday run to 3,235 before going out at 3,155 (-0.9%). Major resistance at 3,200 was cleared but held with continued closes above this level signaling momentum towards 3,250. A close below 3,125 would be another cautious signal for a retest towards 3,100.
Healthcare and Financials showed the most sector strength with gains of 0.6% and 0.5%. Technology and Communication Services led sector weakness after rumbling 2.1% and 2%, respectively.
The iShares 20+ Year Treasury Bond ETF (TLT) settled higher despite the first half backtest to $165.23. Near-term and upper support at $165.50-$165 was breached but held. A close below the latter would would suggest additional downside risk towards $163.50-$163 and the 50-day moving average.
Lower resistance at $167-$167.50 was challenged but held on the rebound to $166.96. A close above the latter would signal a retest towards $168-$168.50 with last Friday’s monthly high of $168.21.
The S&P 500 Volatility Index ($VIX) flipped-flopped for the 5th-straight session after trading to a late day high of 32.45. Near-term and lower resistance at 32-32.50 was breached and held. A close above the latter would be a slightly bearish development for the market with additional upside potential towards 35-35.50.
New support is at 31-30.50 and the 50-day moving average.
The S&P 400 Mid Cap Index ($MID) fell for the 2nd time in 3 sessions despite tapping an afternoon high of 1,805. Resistance at 1,800-1,825 was cleared but levels that held. A close above the latter and the 200-day moving average would signal a retest towards 1,850-1,875.
Current support is at 1,750-1,725 and the 50-day moving average following the late day fade to 1,753. A close below the 1,700 would signal a near-term top.
RSI continues to flatline with lower resistance at 50-55 holding. A close above the latter would suggest additional strength towards 60-65. Key support is at 45 with a close below the June low signaling additional weakness towards 40 and the early April low.
The Utilities Select Spider (XLU) was up for the 2nd-straight session with the intraday high hitting $58.40. Lower resistance at $58-$58.50 was cleared but held with more important hurdles at $60-$60.50 and the 200-day moving average
Current support is at $57.50-$57. A close below the latter and the 50-day moving average would be a slightly bearish development and would suggest additional weakness towards $56-$55.50.
RSI has leveled out with key support at 50 holding. A close below this level would signal additional weakness towards 45-40 with the latter representing the late June low. Resistance is at 55-60.
The selloff into yesterday’s close was certainly an unexpected curve ball and the bulls will need to hold near-term support levels to ensure the selling pressure doesn’t get worse. The market is headline driven, big-time, and will likely remain this way throughout the summer.
The VIX has a little stretch for higher highs but a close above 35 could induce a tad bit of panic selling. A close back below the 30 level today would be a slightly bullish signal for the market.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 23-8 (77%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records. Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades.
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Viavi Solutions (VIAV, $12.76, down $0.15)
VIAV August 14 calls (VIAV200821C00014000, $0.50, down $0.10)
Entry Price: $0.60 (7/13/2020)
Exit Target: $1.20
Stop Target: None
Action: Shares looked to be on the verge of a multi-month breakout with yesterday’s high tapping $13.39. Prior and lower resistance at $13.25-$13.50 and the 200-day moving average was cleared but levels that held.
The drop to $12.75 tapped but held upper support at $12.75-$12.50 by a penny. Earnings are due out the 2nd week of August.
Western Union (WU, $21.47, up $0.14)
WU August 22 calls (WU200821C00022000, $0.85, up $0.10)
Entry Price: $0.70 (7/10/2020)
Exit Target: $1.40
Stop Target: None
Action: Monday’s peak reached $21.99 with prior and lower resistance at $21.75-$22 getting cleared but holding. A close above the latter would be a bullish signal for additional strength towards $22.75-$23 and the 200-day moving average. Support is at $21.25-$21.